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Lawsuit alleges tribal development corporation breached contract in cannabis operation

By Paul Kruze, Contributing Editor

May 16, 2018 (Santa Ysabel) – The Iipay Nation of Santa Ysabel has had a troubled history achieving its goal of gaining financial stability and independence for its 300-member tribe near Julian, some 40 miles east of Escondido.  Now, the Santa Ysabel Tribal Development Corporation is in hot water.

The tribe owned and operated the 37,000 square feet Santa Ysabel Resort and Casino, which included the Orchard Restaurant and Seven Oaks Bar and Grill for seven years. The venture went out of business in 2014, having lost millions after being denied chapter 11 bankruptcy. The tribe’s online interactive gaming site,, is offline and the domain is up for sale or auction.

After the closure of the casino, the tribe turned to marijuana farming in 2015 when it teamed up with El Cajon’s Outliers Collective to transform the former casino space into a marijuana farm. But after a disagreement between the two partners, The Santa Ysabel Tribal Development Corporation is now being accused by Outliers of breaching a contract in a lawsuit filed in early May in Southern California U.S. District Court which could spell the end of their marijuana farming operation. The Santa Ysabel Indian Tribe, itself, is not named as a defendant.

Outliers Collective (Outco) claims that the development corporation and another defendant, identified as David Chelette and GardenPharma LLC, unilaterally terminated a land use deal which Outco had agreed to in July 2015. The agreement allowed Outco to use the location to cultivate and grow marijuana on a wholesale basis. Outco claims that the defendants took over control of the already growing medical cannabis, along with its equipment and greenhouses.

After growing a successful test crop in early 2016, Outco was able to transport a first harvest off the reservation without any complications with local law enforcement agencies. As the operation continued, Ysabel would send Outco monthly billing statements for the amounts due under the Land Use Agreement, which Outco says it paid as billed.

Missing from the invoices was any billing to address the tax payments that were supposed to be due by Outco to Santa Ysabel, in spite of an oral agreement by Chelette that a reasonable timing structure for the tax payments would be followed.

Trouble began, the complaint alleges, when on April 18, 2017 GardenPharma LCC sought permission from the Santa Ysabel Tribal Cannabis Regulatory Agency (TRCA) to enter the premises to take possession of the greenhouses and the onsite equipment by making false statements to the TRCA claiming s that Outco was in breach of its obligations owed to GardenPharma.  The complaint claims that GardenPharma had the right to take possession of the greenhouses and equipment.  Outco refuted GardenPharma’s claims to the TRCA, and contends that Garden Pharma had no right to take possession of the greenhouses and equipment.

The TRCA then issued a directive to GardenPharma and Outco, temporarily suspending access to both. On appeal several days later, Outco was allowed to return to the property and transfer plants from the outdoor greenhouses to the indoor facility. Later, Outco was given notice to take its property off the premises.

In the complaint, Outco alleges that there was a conspiracy among the defendants to induce Outco to sign the land use agreement, buy and build the greenhouses in the center of the dispute.

Outco is seeking $25 million in compensatory damages in addition to punitive damages in an amount to be determined at trial. It is seeking the return of all its personal property, equipment, supplies, greenhouses and profits “resulting from Defendant’s wrongful exercise of control and dominion over the same,” restitution and disgorgement ("the act of giving up something such as profits illegally obtained on demand or by legal compulsion"), reasonable attorney’s fees against the Defendants, and other costs of suit.

ECM contacted both Outliers and the Santa Ysabel Tribal Development Corporation for comments for this article, but neither responded to phone and e-mail messages, likely due to the litigation that is in its preliminary phases.

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